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Why Raghuram Rajan Deserves A Second Term?

Mr. C.S. Sudheer | Updated On Monday, September 17,2018, 06:20 PM

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“I am Raghuram Rajan and I do what I do”. These are the words of the 23rd Governor of the Reserve Bank of India, Raghuram Govind Rajan. These are the words of a man filled with confidence. A man who knows what he is doing. Unfortunately Mr Raghuram Rajan is in the middle of a controversy. His 3 year term as Governor of the RBI, expires in early September 2016. Should he be given another term as the RBI Governor? Powerful elements in the Government do not think so. They are opposed to giving him a second term, which would make him the first RBI Governor not to complete a 5 year term.

The accusations….Mr Raghuram Rajan is responsible for unemployment and collapse of industrial activity in the country. He has raised interest rates with the excuse of controlling inflation. He’s unfit for the country. He holds a sensitive post, but keeps making trips to the US, to renew his green card. Now to the big question. Does Raghuram Rajan deserve a second term?

Know Raghuram Rajan

Raghuram Rajan was born on February 3rd 1963 in Bhopal, Madhya Pradesh. He studied electrical engineering at IIT, Delhi. He earned a Post Graduate Diploma in Business Administration from IIM Ahmedabad, where he was a gold medalist. He did his PhD from Massachusetts Institute of Technology, USA. He was a Professor of Finance in Booth School of Business, at the University of Chicago, USA.

Claim to fame

Raghuram Rajan served as the Chief Economist at the International Monetary Fund (IMF), for 3 years. He was also credited for predicting the 2008 Global Financial Crisis. Took over as the 23rd Governor of the RBI, on September 4th 2013, from Duvvuri Subbarao.

Is Raghuram Rajan a different kind of RBI Governor. You be the judge.

The Rupee was in free fall…In August-September 2013, the rupee slumped to a record low of nearly INR 69 to the dollar. Citizens were wondering…Perhaps the rupee would fall to INR 100 a dollar. Fear…Tension...was in the air. Inflation was soaring. This is when Raghuram Rajan took over as the Governor of the RBI. You got to understand… Raghuram Rajan was a Professor of Finance in Chicago, USA. This was a country known for easy money or loose credit. Simple…in an economic crisis, make money available in plenty. US Fed cut interest rates. Banks would give inexpensive loans (loans at a very low interest). US Citizens were encouraged to spend their way out of an economic crisis. Would Raghuram Rajan do the same?

Raghuram Rajan did exactly the opposite, of what the so called intellectuals where expecting from him. He hiked benchmark interest rates called repo rates not once… but twice in two months. The repo rates were raised from 7.25% to 7.5% and then 7.75% in a span of two months. He again raised the repo rate in January 2014 to 8%. All of this…Just to control soaring inflation.

Raghuram Rajan was an out of the box thinker. Economists predicted him following an aggressive approach to control inflation. What did he do…He followed a conservative approach. Inflation soon fell and the economy was back on track. Raghuram Rajan was the man for a crisis.

No sympathy for politics

Raghuram Rajan is no stranger to politics. He raised repo rates in January 2014, when the then Congress Government was in election mode. With elections round the corner, the Congress Government was opposed to this move. Clearly Raghuram Rajan just did what he saw fit for the economy. He never bothered about political consequences.

Cut to today. For several years, bad lending practices and political pressure meant, public sector banks were buried up to their neck with bad loans. Raghuram Rajan was firm…Catch the willful defaulter and make him pay. Willful defaulters mainly promoters of large Companies, borrowed several crores and then defaulted on the loan. For those who do not know, a willful defaulter has the capability to pay back the money, but is reluctant to pay. He said “Promoters don't have divine right to stay on even when they mismanage”. Banks should take over the management of their businesses. Banks have been chasing willful defaulters asking for their money back. The result…Political pressure from influential promoters. They want Raghuram Rajan out.

In recent times Raghuram Rajan has been cutting the repo rate. The repo rate has been cut from 7.75% to 6.5% over the past year. Raghuram Rajan expects banks, to pass on this benefit of the rate cut to the customer. What does this mean? Your loans just got cheaper. However banks are reluctant to pass on the benefit. Why should Raghuram Rajan be blamed for this?

Raghuram Rajan does his bit for banks

Financial inclusion means banking services reach each citizen, in every nook and corner of the nation. This means more banks. During Raghuram Rajan’s term, 23 banking licenses were issued. 11 payment bank licenses and 10 small bank licenses were issued in August- September 2015. Small banks operate mainly in rural and interior areas of the country. Small banks accept deposits from you, as well as give you loans. What is a payment bank? You can open a savings bank account with a payment bank, as they accept deposits up to INR 1 Lakh per customer. You cannot avail loans or credit cards from payment banks. Do you think Raghuram Rajan deserves a second term? You be the judge.

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Mr. C.S. Sudheer

Mr. C S Sudheer is the founder and CEO of IndianMoney.com – India’s largest Financial Education Company. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.